Amazon’s move to build an app store for Android may have initially sounded like a good idea, but in the end it could end up screwing the developers that would make it all possible. How so? A little-publicized stipulation of its agreement with developers: the retailer sets the price.

Developers would still get to say what they’d like to sell their application for, an MSRP if you will. But Amazon does not guarantee that’s what its customers will pay. Instead, the retailer may choose to sell the app at a discount — just like Amazon does for other items on its site — or even give it away for free.

The developer would receive 70% of the selling price, or 20% of the MSRP, whichever is greater. So for example if a developer wants $5 for his or her app, but Amazon sells it for $3, the developer gets $2.10. If Amazon decides it wants to charge nothing for it for whatever reason, the commission drops to $1. Of course on apps with a higher MSRP and larger discount, the 20% rule could give the developer a larger cut in some cases.

I am flabbergasted that the company thinks this makes sense. Many developers are already practically giving away their work in hopes that cheap prices will bring more volume, and for Amazon to think it somehow knows better when it comes to this is beyond comprehension.

One thing is for sure: if Apple even ever thought of doing this, they’d be buried in an avalanche of criticism. That’s probably why the company has taken a hands-off approach when it comes to app pricing. Yes, from time to time the company has flexed its muscle to keep App Store users from being fleeced, but generally it is not telling developers how much their apps are worth.

As Dan Frommer pointed out on Silicon Valley Insider Friday, Amazon’s price strategies work elsewhere because it pays a wholesale price for product before it is sold. However with apps, nobody’s making anything until the customer purchases and downloads. Thus, it is Amazon who has the final say.

It could also force the developer to lower its prices elsewhere — such as a companion app on Apple’s App Store or RIM’s BlackBerry App World — to prevent other customers from feeling like they’re being overcharged.

Amazon should nix this idea. It shouldn’t decide the value of somebody else’s work. Hopefully developers will stand their ground, not only for themselves but the rest of the industry as well.

29 Comments For This Post

Until we have a documented track-record of Amazon screwing developers by selling their $10 apps for $1, I think we should withhold judgment.

Personally, this could be great for developers. I'm not sure how the pricing works on Steam, but from what Valve has stated publicly, each time they run one of their crazy sales, sales increase so drastically that the developers see huge revenue increases. If Amazon can do the same thing (lower prices, offer free publicity), developers could benefit.

If Android developers think this is a raw deal, or if they see other developers getting screwed, I'm sure they'll stay away. However, right now, there's just no basis for the claim that this could be harmful to developers.

"Until we have a documented track-record of Amazon screwing developers by selling their $10 apps for $1, I think we should withhold judgment."

If Amazon sells your $10 app for $1, you still get $2 (20% MSRP). As long as they sell 3.5 apps for every app you were selling at full price, you should be happy with the situation. At 90% discount, I would definitely hope that they would sell more than 3.5 times the number of apps.

I believe this is how Amazon has been working it for self-publishers of Kindle editions also — those who go with the 70%-30% split option. There Amazon requires the MSRP to be 2.99-9.99 but reserves the right to sell for less. Richard Curtis over on ereads had a good analysis of those terms back sometime in the summer of 2010.

Nice idea to give an example of what a developer would earn under Amazon's fee schedule, but you should do your math a little better. A $5 app sold for $3 would earn the developer $4 because 20% of the MSRP is "greater" than 70% of the selling price….

"The developer would receive 70% of the selling price, or 20% of the MSRP, whichever is greater. So for example if a developer wants $5 for his or her app, but Amazon sells it for $3, the developer gets $2.10. If Amazon decides it wants to charge nothing for it for whatever reason, the commission drops to $1, but since $2.10 is greater, that would be the commission."

Ed, this seems an incorrect reading. If the developer's MSRP is $5, then their minimum commission is $1 (20% of MSRP). If Amazon sells it for $3, then the developer would get the larger of $2.10 (70% of $3) or $1 (20% of MSRP) – so, $2.10. That much is correct.

If Amazon chooses to give the app away (or sell it for $0.01, if free is not allowed), then the developer gets the large of $0 (70% of $0) or $1 (20% of MSRP) – that's $1, not $2.10.

Good catch Paul. I originally had it the way you calculated and thought I had made a mistake. Well, I obviously had it right the first time. Did add the caveat that in some cases of deep discounting this would be flipped, and 20% MSRP may be the better option.

Either way this isn’t right. It almost makes developer-set prices seem arbitrary now don’t you think?

Are really surprised that Amazon thinks it knows more about online retail and digital sales that a bunch of indie Android developers? I would rather amazon sold 10x volume of my app whilst paying me say 50% of what I get on the Android store.

First of all, I think this a good thing for developers. There are a couple of things going on here:

1) You get $1 when your app is given away for free? OHS NOES! This seems like a great trade off to me.
2) Amazon is going to have a massive pile of data telling them what price has the highest marginal return for each individual app. As a dev selling on the market, you only have data on your app and know nothing of the rest of the market. I would much rather have a successful company like Amazon who has proven they can price to sell and make a massive profit be in charge of setting prices. Duh.
3) Again, where is the time in this whole scheme where Amazon is screwing the devs? They are giving the higher amount at any given time. I fail to see how this screws the devs.

I think amazon setting the final selling price is an outstanding idea. But the way they designed this system is horribly lopsided in amazon’s favor.

The app developer should define a wholesale price for their app (standard MSRP would be wholesale + 25%). For every copy of the app sold amazon pays 100% of the wholesale price back to the developer. Amazon is free to raze or lower the real selling price as they see fit.